Bloomberg is reporting that:
Banks including ANZ Bank New Zealand Ltd. (ANZ) and Westpac Banking Corp. (WBC) have lowered some fixed mortgage rates by more than a quarter-percentage point since January as the cost of global funding falls. That’s hindering Wheeler’s efforts to cool the economy with three quarter-percentage-point cash rate increases this year, the first among developed nations in 2014.
New Zealand joins countries includingChina, the U.K., Canada and Norway, which are seeking the right policy mix to deflate potential housing market excesses, with some taking steps that limit credit rather than rely solely on rate increases. Months after New Zealand last year implemented curbs on the riskiest mortgages to tame prices, buyers are turning to lower fixed-rate loans that could re-ignite the property market and pressure Wheeler to raise the cash rate more aggressively.
“People forget that it’s retail interest rates that affect the real economy and those have fallen since the Reserve Bank started its hiking process,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington. “It wouldn’t have been what the Reserve Bank expected or preferred.”
About 70 percent of all new mortgages in New Zealand are being written with fixed rates, according to Wheeler. Home buyers are insulating themselves from rises in variable home-loan rates, which move in line with the cash rate.
Let’s face it, banks will lend. The real problem here is that markets are mis-pricing risk again and feeding the Australian banks the same poison that caused their quasi-nationalisation five years ago, ever cheaper debt. By all means blame that on foreign central banks in turn.
So far the China adjustment that is underway – which is primary source of NZ (and especially) Australian risk – has been roundly ignored amid the dash for trash brought on by Western QE. It appears it will take a more serious correction in China (or self-induced market implosion) to reverse it.
But reverse it will, at which point official rates in NZ and here will have to compensate and our final chamber of monetary bullets will be empty.
